A general layman deciphers the term ‘Loan’ as a financing option which helps one during the emergency hour. While some may have positive perceptions about it and some prefer staying away from it. As they say, lack of knowledge is dangerous and hence one should have a clear definition of loan and all related aspects to it. The most important aspect which is associated with the loan is that of collateral. A collateral is a security that is kept with the lender against which he is offered the loan. This security could be an asset, property, car, gold, inventory, machinery, etc.
On account of whether a lender offers the loan with or without any asset, loans can be divided into two types viz. secured loans and unsecured loans. Business loans are a kind that is offered with and without the security depending on the loan amount, tenure and lender.
Businesses whether new or old, are in need of funds to meet their long and short term expenses. Some of the financing options which can be availed by these businesses include overdraft facilities, business and personal loans, loan against property, debentures, and line of credit. Each of these comes with its pros and cons. Before one may opt for any, it is crucial to understand the difference between an unsecured business loan and loan against the property so that you end up making the best financing choice.
WHAT IS AN UNSECURED BUSINESS LOAN?
Unsecured business loans are the loans that are offered to the borrowers without the requirement of any collateral to be kept as security. These are usually short term loans and come handy to meet the immediate expenses like stocking up inventory, buying new machinery, marketing, and operational purposes, hiring new staff, making payments, etc.
WHAT IS A LOAN AGAINST A PROPERTY?
A loan against property is clearly understood as it reveals that these loans are offered when the borrower keeps any property (commercial or residential) as security with the lender for the duration of the loan. Also referred to as the mortgage loan, herein the owner (borrower) keeps the property documents with the lender and agrees to repay the loan amount in equated monthly installments. The key point to note here is that the loan amount shall not exceed the value of the property and the borrower shall have a good credit score.
DIFFERENCE BETWEEN LOAN AGAINST PROPERTY AND UNSECURED BUSINESS LOAN
Loan against Property
These loans are best if the loan amount required is huge. However, the lender evaluates the property which is kept as the security and accordingly decides for the loan amount which is usually lower than the worth of the property. These loans are excellent for making development changes in the business like setting up a new plant, refinancing, acquiring, etc.
Unsecured business loan
These loans cater to short term business funding requirements and are helpful for the growth and expansion of the business. These are offered by various lenders even without the requirement of any asset. These loans are approved quickly. One can apply for unsecured business loans through the LoansJagat portal by comparing different lenders of their offerings in terms of rate of interest, loan amount, loan tenure, EMI, etc. and choose the one which best meets their requirements.